Econintersect: Australian economist Steve Keen recently wrote an extended analysis critical of Paul Krugman’s use of the IS-LM model which was published in two parts by Global Economic Intersection. (See Sources, end of this article.) Krugman has written a brief rebuttal posted today (19 March 2013) in The New York Times. His title indicates he thinks the discussion is not important. His concluding statement indicates he thinks the discussion is ended:
So can we get back to serious stuff?
Global Economic Intersection contributor Dirk Ehnts of the Berlin School of Economics and Law finds the discussion leaves him confused and thinks there is some serious stuff involved. Ehnts comes down to a conclusion that Keen (disequilibrium) and Krugman (equilibrium) are living in two different universes. Ehnts says:
I always interpreted the IS/LM model as one of comparative statics. You can only compare equilibria, dynamics are not modeled, neither from non-equilibrium to equilibrium nor from one equilibrium to another.
It appears that Ehnts doesn’t think the discussion is over. Perhaps it hasn’t even begun.
Sources:
- Misunderstanding IS-LM (Wonkish and Unimportant) (Paul Krugman, The New York Times, 19 March 2013)
- Krugman Doesn’t Understand IS-LM, Part 1 (Steve Keen, GEI Analysis)
- Krugman Doesn’t Understand IS-LM, Part 2 (Steve Keen, GEI Analysis)
- Keen, Krugman and Confusion (Dirk Ehnts, GEI Opinion)
